Intro. [Recording date: December 29, 2025.]
Russ Roberts:
Today is December 29th, 2025, and I have the pleasure of hosting writer Aled Maclean-Jones, whose Substack, Rake’s Digress, cleverly nods to Rake’s Progress.
Aled Maclean-Jones: That’s right!
Russ Roberts: Today, we’ll delve into Aled’s fascinating essay about how Japanese innovation turned the Swiss watch industry on its head, yet somehow, the Swiss managed to survive the storm.
Welcome to EconTalk, Aled.
Aled Maclean-Jones: Thank you, Russ. It’s a delight to be here, especially as a long-time listener.
Russ Roberts: We’re thrilled to have you.
Russ Roberts: Your essay, titled “The Survival of Swiss Watches,” was featured in Works in Progress, which our audience can explore through the links. The narrative kicks off in 1984 with two men sleeping in a car. Who are these individuals, and why should we care?
Aled Maclean-Jones: I chose 1984 as a pivotal moment for the Swiss watch industry. It marked an incredibly low point for them, as they had reigned over the global watch market for three decades. To them, “watch” meant “Swiss,” and they believed this dominance would persist indefinitely. However, the advent of quartz technology, primarily led by the Japanese, dramatically shifted the landscape. The industry quickly transitioned from global leader to dire straits, with about half of Swiss watchmakers going bankrupt and two-thirds of jobs disappearing.
My essay starts in a parking lot in Basel, featuring Jacques Piguet and Jean-Claude Biver, two renegades who had just acquired a struggling brand called Blancpain. They aimed to spearhead the resurgence against quartz watches, but lacking funds, they were driving a borrowed Volkswagen Westfalia to the Basel Fair, the premier event in the watchmaking calendar.
Russ Roberts: Let’s pause there. I want to highlight two points. First, as far as I know, blancpain translates to “white bread,” suggesting something generic and unremarkable—hardly the essence of that brand. We’ll revisit this later.
Second, a noteworthy insight from Clayton Christensen’s The Innovator’s Dilemma is that competitors often emerge not as improved versions of existing products but as radically different alternatives.
Consider the slide rule: an impressive tool for complex calculations that was eventually overshadowed by calculators—devices that serve the same purpose but in an entirely different manner. This unexpected competition is a vital lesson in business and economics. Any thoughts on that?
Aled Maclean-Jones: Absolutely. I chuckled at your slide rule reference because I was actually reading a memoir titled Slide Rule by Nevil Shute as we recorded this. I completely agree with you.
Another fascinating aspect of the Swiss watch saga is how the larger incumbents like Rolex and Patek Philippe had the resources to adopt a “wait-and-see” approach. This dynamic meant that the impetus for change had to originate from elsewhere in the industry.
Russ Roberts: It’s emotionally challenging for companies to pivot, reminiscent of the Intel story with Andy Grove and Gordon Moore deciding whether to shift from chips to processors. Their emotional attachment to their roots made it difficult to let go. In this case, the Swiss watch industry tried to do both: embrace quartz while sticking to traditional craftsmanship, partially out of emotional necessity.
Russ Roberts: Let’s delve into the history of quartz watches. Seiko, the Japanese company, pioneered the use of a vibrating crystal to power watches. By 1870, the Swiss were producing 1.6 million watches, while France was a distant second at 300,000—illustrating the Swiss dominance.
Initially, quartz watches weren’t perceived as a threat due to their high price. Seiko launched a quartz watch in 1969 priced at $1,250, equivalent to the cost of a Toyota Corolla. Hardly a game-changer at that price point, right?
Aled Maclean-Jones: Exactly. The journey began in the 1920s at Bell Labs, where the original quartz technology was developed. The Japanese took this concept seriously, leading to innovations that quickly transformed the market. While Swiss makers were tinkering with quartz, they didn’t fully grasp its potential, leading to a rapid Japanese ascent.
Interestingly, despite the Swiss having a team working on quartz mechanisms, their lack of urgency cost them dearly. Their market was primarily focused on high-quality, high-priced watches, and they failed to recognize the value of affordable, accurate quartz options.
Russ Roberts: In the early 1870s, the Swiss held 80% of the global watch market. However, the quartz watch’s initial accuracy—claimed to be 100 times better than existing watches—didn’t seem critical at first. Adam Smith makes a pertinent observation in The Theory of Moral Sentiments about how people often prioritize the perfection of timepieces over their utility. What’s your take on that?
A watch… that falls behind above two minutes a day, is despised by one curious in watches. He sells it perhaps for a couple of guineas, and purchases another at fifty, which will not lose above a minute in a fortnight. The sole use of watches, however, is to tell us what o’clock it is, and to hinder us from breaking any engagement… [The Theory of Moral Sentiments, by Adam Smith.]
Aled Maclean-Jones: I think Smith’s quote is spot on. His perspective reflects a time when watches were critical for navigation and societal coordination. The evolution of watches, from practical devices to symbols of craftsmanship, resonates even today.
Russ Roberts: Speaking of watches, are you wearing one right now?
Aled Maclean-Jones: Yes, I am! Interestingly, I wasn’t a watch person until I wrote this article. I became intrigued with the craft and history of watches, and now I wear a mechanical one to connect with the subject matter.
Russ Roberts: I often use my phone to check the time but prefer the subtlety of a wrist glance in meetings. There’s something delightful about wearing a crafted timepiece, don’t you think? I have a Sternglas and an Omega pocket watch at home—though I have to be cautious about magnets with my AirPods!
Russ Roberts: In 1969, Seiko launched its quartz watch, and soon after, Citizen and Casio followed suit. You noted that Japanese watch production tripled during the 1970s, with Seiko becoming the world’s largest watch company by revenue by 1977. Meanwhile, Swiss production plummeted, resulting in massive job losses. What changes occurred during this tumultuous period?
Aled Maclean-Jones: The Swiss industry was accustomed to competing on quality, often outpacing British and French manufacturers. The Japanese challenge forced the Swiss into a corner. Initially, some Swiss companies attempted to innovate with quartz, but many were overwhelmed by the rapid changes in the market. Omega, for instance, expanded its model lineup drastically, but this led to confusion and inefficiency.
Meanwhile, established brands like Rolex adopted a defensive stance, dabbling in quartz but ultimately choosing to ride out the storm, waiting for better times.
As the crisis deepened, financial struggles prompted consolidation among manufacturers, with government-backed lifeboats keeping the industry afloat. By the 1980s, the Swiss watch landscape was chaotic, filled with oversized conglomerates grasping for survival.
Russ Roberts: It’s striking that historically, Swiss watches were positioned as affordable luxury. This contrasts sharply with the perception of Japanese products as inferior during that time. When faced with the quartz threat, the Swiss pivoted towards specialization, exemplified by the efforts of Biver and Piguet with Blancpain. What was their innovative approach, and how did it manifest at the Watch Fair?
Aled Maclean-Jones: Biver and Piguet aimed to reposition Blancpain as an antidote to quartz, emphasizing artisan craftsmanship rather than mere timekeeping. At the Basel Fair, they creatively showcased their brand despite having limited products, opting for empty cases and engaging storytelling to generate intrigue.
Ultimately, their marketing strategy—focused on the narrative of human craftsmanship—became their true innovation, helping to redefine the brand’s identity.
Russ Roberts: Nicolas Hayek emerges as a key figure in this saga. Who was he, and how did he contribute to the Swiss watch revival?
Aled Maclean-Jones: Nicolas Hayek was a management consultant with a knack for engineering. Recognized by Swiss banks for his expertise, he was tasked with evaluating the struggling watch industry. His report advocated for consolidation, leading to the creation of a unified company that could rationalize operations and compete effectively.
Hayek’s vision was not just about survival; it was about restoring Swiss manufacturing pride and demonstrating that Europe could compete against global giants.
Russ Roberts: It’s fascinating how, contrary to my initial assumptions, Swiss watches were not always luxury items. Hayek’s report revealed that 90% of the 500 million watches sold annually were priced under $75, a market the Swiss had ignored. This led to the creation of the Swatch. What can you tell us about this remarkable development?
Aled Maclean-Jones: Hayek viewed the low-cost market as an opportunity to prove that Swiss craftsmanship could produce affordable watches. Collaborating with a team at ETA, they innovated to create the Swatch, a watch that combined affordability with style. Initially met with skepticism, the Swatch eventually became a fashion phenomenon, embodying vibrant designs and experiential marketing.
The Swatch not only revitalized the Swiss watch industry but also created a new market segment, leading to a resurgence in Swiss watch production.
